Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here is one small-cap stock that could be the next big thing and two that could be down big.
Two small-cap stocks to sell:
Lindsay (LNN)
Market cap: $1.12 billion
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE:LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Is LNN Risky?
- Muted 2.3% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Earnings per share have contracted by 6% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital suggest its historical profit centers are aging
Lindsay is trading at $109.69 per share, or 21.4x forward P/E. Check out our free in-depth research report to learn more about why LNN doesn’t pass our bar.
First Merchants (FRME)
Market cap: $2.59 billion
Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ:FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.
Why Do We Avoid FRME?
- 8.2% annual net interest income growth over the last five years was slower than its banking peers
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Capital trends were unexciting over the last two years as its 4% annual tangible book value per share growth was below the typical banking firm
First Merchants’s stock price of $41.38 implies a valuation ratio of 1x forward P/B. Dive into our free research report to see why there are better opportunities than FRME.
One small-cap stock to buy:
Kinsale Capital Group (KNSL)
Market cap: $8.55 billion
Founded in 2009 during the aftermath of the financial crisis when many insurers were retreating from riskier markets, Kinsale Capital Group (NYSE:KNSL) is an insurance company that specializes in writing policies for hard-to-place, unusual, or high-risk businesses that standard insurers typically avoid.
Why Will KNSL Beat the Market?
- Net premiums earned surged by 25.4% annually over the past five years, reflecting strong market share gains this cycle
- Share buybacks catapulted its annual earnings per share growth to 34%, which outperformed its revenue gains over the last five years
- Balance sheet strength has increased this cycle as its 24.2% annual book value per share growth over the last five years was exceptional
At $374.33 per share, Kinsale Capital Group trades at 4.1x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
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